China's Bad Medicine Is No Game

Posted August 6, 2008

Hundreds of thousands of visitors are descending on Beijing for the Olympic Games, which begin Friday. For months, the government has orchestrated an elaborate effort to ready the city: cleaning streets, clearing the skies, even designating “Olympic” emergency and medical services.

But according to investigators based in Beijing and Hong Kong, who refuse to speak on the record because they fear government reprisals, visitors might consider steering clear of military-owned hospitals where they could run the risk of being treated with substandard or counterfeit medicines.

The Chinese military operates outside of the law, running counterfeiting networks even though such profit-making military enterprises are technically illegal.  “Such operations,” investigators say, “are tolerated by the Beijing regime.” As the Washington Post reported as far back as 2002, “trucks with military license plates are seen bringing goods in and out of Puning’s pharmaceuticals market,” a recognized center for wholesale pharmaceuticals, counterfeit and legitimate alike.

According to the U.S. Trade Representative’s Special 301c Report issued in April, smuggling and counterfeiting of drugs is a major problem in China. While USTR stopped short of mentioning military involvement, others are more explicit. As local anticounterfeiting expert Li Guorong told the Asia Times this April, “Counterfeiting is now so huge” in the country that “radical action would crash the economy overnight [and] even destabilize a government where counterfeit factories and warehouses are often owned by local military and political grandees.”

My own investigations and discussions with investigators show that the Kang Hong Medical Company, based in southwestern China and owned by retired and active military officers has sold counterfeit painkillers, antibiotics and other drugs which it then passed off as Western innovator companies’ products. These products were sold to several hospitals, including Number 211 PLA hospital, in Harbin City in far northeastern China.  This hospital, like many military hospitals, is not only frequented by military personnel but also by fee-paying civilians too. Thus far there have been no official reports of patients falling ill from counterfeit products linked to military hospitals.  Still, in a country where controversial medical data has been suppressed this provides little assurance. Indeed, Beijing PLA hospitals were implicated in not disclosing SARS cases in 2003.

Investigators tell me the owners and managers of these hospitals “make a lot of money,” by purchasing counterfeit drugs at a discount and then charging patients the full price for an equivalent innovator product. Kang Hong faked authorization letters from the legitimate trader and wholesaler Guangdong Yu Xing, allegedly allowing it to supply innovator products to the hospitals owned by senior figures within the People’s Liberation Army (PLA).  But Guangdong Yue Xing never gave such an authorization. When it pointed this out to the local Harbin City office of the Chinese Food and Drug Administration (SFDA), the SFDA said that the military hospital was not under its jurisdiction, nor under the jurisdiction of any civil entity.

Kang Hong tried the same approach in Jin Zhou City in Southern China, again pretending to represent innovator company products. Once again, SFDA said it could not act.
 
The impact of military-complicity in counterfeiting extends overseas. Military-backed companies are allegedly involved in manufacturing bulk active pharmaceutical ingredient (API), which pose a unique threat to the U.S. market. Forty-percent of bulk pharmaceutical ingredient used in U.S. medicines is produced in India and China, and that number is expected to double over the next 15 years. Over the past year, the U.S. Food and Drug Administration has linked the deaths of 95 Americans to tainted API produced in China.  

But visitors in Beijing will face a more immediate problem: PLA General Hospital 301. Dubbed the “Olympic designated hospital” by the Beijing Ministry of Health, PLA 301 (along with its associated hospitals, 304 and 309) has over 4,000 beds and more than 150 technical departments. It is likely to be used by the Chinese government for any medical problems during the Olympics. Noticeably it is not on the approved list provided by the U.S. State Department. While Chinese military authorities are unlikely to allow fake medicines to be used in these hospitals, since the publicity of any harm would be highly damaging, they may simply not know where all the fake drugs are. Since drugs are easily moved and according to investigators, rogue sales are rife, bad drugs can turn up in nearly any hospital at almost any time.

For the sake of the millions of international visitors to China—and for a country eager to impress the world with its cleaned up image–let’s hope that doesn’t happen.

Mr. Bate, a resident fellow of the American Enterprise Institute, is the author of “Making a Killing: The Deadly Implications of the Counterfeit Drug Trade,” published in June by AEI Press.